Park eats her words. Can, and will, South Korea’s president make more just, equal society?

2013-09-26 16:59

Park eats her words

Can, and will, president make more just, equal society?        
President Park Geun-hye Thursday expressed regrets about her failure to fully deliver campaign promises on key social welfare programs. “I will try my best to realize these pledges during my term of office,” Park said while presiding over a Cabinet meeting.
Koreans can neither understand why President Park is backtracking on the most important election pledges nor accept the way she is doing so. Park cited the slower-than-expected economic recovery and consequent hole in government revenue as the main reason. This means that she won the election on a pledge that can change by the fluctuations in the business cycle.In other words, Park became president on the back of a progressive platform but is pursuing conservative policies to govern. We don’t think that the political opposition is wrong to describe this transformation “national deception.”
The President is not even apologizing, directly to voters, for the blatant breach of her own words, citing the fiscal “inevitability.” Virtually encouraging Park to back away from establishing a universal welfare policy is the conservative media which stresses the need for the government to face up to “reality” for the “sustainability” of this society.
But the “real” reality is Korea should ― and can ― expand public welfare if for no other reason than making it “genuinely” sustainable.
Let’s check on reality. Korea’s government spending on welfare is only half or one-third of the OECD average, while Koreans’ tax burden ratio stands at 19.3 percent of its gross domestic product, far lower than the 24.6 percent among the members of the club of industrial countries, indicating there is still ample leeway for tax hikes. Add to this the OECD-leading poverty rate among aged people, and Park’s retreat from her plan to give basic pensions for all people 65 or older becomes all the more lamentable.
Most advanced countries increased their spending on pension to 10 percent of GDP when the ratio of their aged people reached 17 percent of population. As things stand now, Korea will be able to do the same when the senior citizens account for 40 percent of its population. It is hard to see why this country with per capita income of more than $20,000 cannot move toward a welfare state, which other industrial nations accomplished when their income stood at between $10,000 and $15,000.
The reason is clear: Deep down in their hearts, Korea’s establishment is unwilling to share their lot with their less privileged compatriots, no matter what they say in public.
And the method is even simpler: the government should increase taxes in a fair, equitable and way in a capitalistic society, namely by applying steeply progressive rates. All the Park administration has to do is to go back to corporate and income tax rates of six years ago. It will easily raise financial resources of 135 trillion won ($120 billion) needed until 2017, or 27 trillion won a year, also for providing free childcare for all under-fives and medical care for four major ailments. Just compare Korea’s real corporate tax rate of 16 percent with the U.S.’s 26 percent.
At stake is whether President Park has the will ― and courage ― to do the “inevitable.” If Park and her party don’t have both, voters will select those who have four years later.
2013-09-27 17:25

An irresponsible budget

Proposal reveals limitation of welfare without tax hikes
The government’s 2014 budget aims to kill three birds ― economic growth, welfare expansion and fiscal balance ― with one stone. In a worst-case scenario, President Park’s first budget, released Thursday, is feared to kill none and throw the administration into a trilemma.
One can hardly blame the government for drawing up a deficit budget, given the dire need to perk up the dormant economy.
The question is how to spend it.
Welfare spending will top 100 trillion won (105 trillion won, exactly) for the first time, accounting for 29.4 percent of total outlay and causing an outcry among deficit hawks about giving out alms using borrowed money.
Among the 31 OECD member nations, Korea is the only country whose ratio of welfare spending still fails to reach the 30-percent mark, however. After excluding some 60 trillion won for strictly non-welfare projects such as public pensions and housing construction, ”genuine” welfare expenditure even falls to 45 trillion won.
In comparison, the government will spend 23 trillion won on replenishing social infrastructure, such as building roads and expanding ports. As Finance Minister Hyun Oh-seok acknowledged, the amount has not changed by much, or even increased, since the Lee Myung-bak administration, after one deducts the annual 4.4 trillion won poured into Lee’s pet project of restoration along the nation’s four largest rivers.
Minister Hyun says the so-called social overhead capital (SOC) spending is to kick-start recovery, but Koreans saw large public-funded projects have done little for either economic growth or job creation, giving benefits to only large construction firms. When government budgeters stress SOC expansion, voters can sense that another major election is approaching. Can officials deny that the actual increase in construction spending has nothing to do various pork-barrel projects in time for next year’s local polls?
Taxpayers will find it tolerable to see their money used for supporting small- and medium-sized enterprises’ R&D efforts or boosting the welfare of a large number of less well-off people, but not fattening the pockets of a handful of builders. Add to this the myriad of earmarked spending to be added by lawmakers during parliamentary deliberation, especially those in the National Assembly’s Budget Committee, and a considerable part of the 357.7 trillion-won budget will once again go on the table of collusive feast among politicians, bureaucrats and builders.
No less problematic are exaggerated revenue estimates based on unduly ― and intentionally ― optimistic growth projection. Officials forecast the economy to grow 3.9 percent but few, if any, mainstream economists agree with this. The budgeters should stop their time-dishonored practice of blowing up revenue projection initially and attributing the deficit to smaller-than-expected revenue later.
The 2014 budget illustrates the limitation of expanding welfare without a corresponding increase in taxation. The nation has three clear options: giving up dreams to become a welfare state which it never has been, until the economy grows 7-8 percent a year as in the past, an impossible scenario for this maturing economy; borrow more and leave debts to future generations; or increase taxes in ways 90 percent of population can agree.
For any responsible leaders, the choice can’t be simpler. Basic welfare is not a dispensation but the obligation of those who govern. Deficit hawks call for a nationwide committee to readjust welfare programs. We also think a national panel is needed ― to restructure the tax system.

2013-09-27 17:14

Will President Park make people happy?

By Sah Dong-seok
Korea ranked 41st out of 156 nations around the world in terms of overall happiness, according to the 2013 World Happiness Report released earlier this month. Out of 10 points, Korea earned 6.267 points, higher than the global average of 5.158 points.
Denmark, Norway, Switzerland, the Netherlands and Sweden ― all in Northern Europe ― are the world’s happiest countries, while Rwanda, Burundi, the Central African Republic, Benin and Togo ― all in sub-Saharan Africa ― are the most unhappy. Interestingly enough, rankings for Greece, Italy, Portugal and Spain fell sharply, apparently due to the impact of the eurozone crisis.
The report, based on a survey conducted between 2010 and 2012 by Columbia University’s Earth Institute, shows that Korea’s happiness levels improved a bit from the previous survey. In conducting the survey, the think tank considered such factors as GDP, freedom, life expectancy, corruption and so on.
That Korea was ahead of Taiwan (42nd) and Japan (43rd) comes as a small surprise, given the general belief that Koreans are increasingly becoming unhappier amid the prolonged economic slump, the ever widening polarization and deepening regional and social conflicts.
When it comes to talking about happiness, President Park Geun-hye cant’ be counted out. In her inaugural speech entitled “Opening a New Era of Hope,’’ she left strong impressions among the people by suggesting the “happiness of the people’’ as one of the three catchphrases her administration will pursue during her five-year tenure.
The nation’s first woman president, in particular, let the public ― supporters and opponents alike who have been suffering from tough economic hardships in the aftermath of two economic crises ― look forward into the future, saying, “I will do my utmost to build a Republic of Korea that is prosperous and where happiness is felt by all Koreans.’’
While it’s true that not all Koreans will be happy even if her ambitious dreams come true, it’s likely that our happiness levels will be higher than now should she keep her promise. To achieve that, President Park needs to end up as the nation’s first successful head of state.
Seven months into office, she is enjoying relatively solid approval ratings ― more than 60 percent. She is receiving good marks in inter-Korean affairs and diplomacy, whereas the overall assessment of her domestic policies is not as encouraging.
It’s no wonder that the economy will hold the key to determining the success or failure of her administration down the road. Fortunately, there are signs ― more recently ― that the economy is picking up after years of downturn.
Nevertheless, tough challenges are everywhere in the economic sphere. Despite her inaugural promise to pursue economic revitalization on the basis of realizing a creative economy and economic democratization, the results achieved so far are not impressive.
The deep-seated problem of household debt is going from bad to worse as the government steps up efforts to boost the dormant property market in its belief that the real estate slump is the root cause of the overall economic downturn. Household debts amounted to 980 trillion won as of the end of June and are expected to surpass 1,000 trillion won by the end of this year.
President Park vowed to raise the country’s employment rate to 70 percent through job creation related to her creative economy initiative, but little has been done to date. She also committed herself to bringing light to the shadow economy to raise more taxes needed to make good on her welfare pledges, but much talk about that may result in making money go underwater without results.
Park has distanced herself from politics and is poised to devote herself to economic revitalization through the end of the year, apparently conscious that the public’s No. 1 concern is the economy. But this could put her at risk in the long run, considering that the primary mission of the President is engaging in politics.
All our previous heads of state stayed away from politics while in office without exception and none of them have been successful. This should be a valuable lesson for President Park.
The rival parties are on a cliff-hanging standoff over the aftermath of last year’s presidential election. The main opposition Democratic Party is strongly calling for an apology from her in connection with the state spy agency’s alleged meddling in the presidential poll. A vernacular newspaper’s report that Prosecutor General Chae Dong-wook fathered an out-of-wedlock son added fuel to the already serious partisan wrangling.
President Park has not budged an inch from her confrontational stance toward the liberal opposition party, reiterating that she didn’t receive any help from the National Intelligence Service on her way to the election victory.
She may feel it’s unfair, but what the public really wants to see is for the chief executive to talk with her political opponents in earnest and persuade them over state affairs. She will be touted as a successful president only if she can have the tradition of dialogue and compromise rooted firmly in our political arena.
The author is the chief editorial writer of The Korea Times. Contact him at

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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